Monday, November 29, 2010

Market Data: Week Ending November 19, 2010


Market Index 2009   Close 11/26  Close Week Change Simple YTD %
Dow Industrials Avg 10428.05 11,092.00 -1.00% 6.37%
S&P 500 1115.1 1,189.40 -0.86% 6.25%
Fed Funds Rate 0.25% 0.20% 0.00% 0%
10 yr T-note Yld 3.85% 2.87% 0.00% -0.98%
5 yr T-note Yld
1.53% 0.01%
5 yr TIPS - 'Real' Yld
-0.21% -0.01%
Implied 5 yr Inflation %
1.74% 0.02%
2 yr T-note Yld 1.14% 0.51% 0.01% -0.63%
2-10 Yr Slope 2.70% 2.36% -0.01% -0.34%
90 day T-bill Yld
0.15% 0.02%
Gold ($/oz) $1,096.95 $1,364.30 0.88% 24.37%
WTI Oil ($/brl) $79.36 $83.76 2.17% 5.54%
VIX "Worry Index" 21.68 22.22 23.17% 2.49%





Credit Spreads
11/26  Close Week Change
Inv Grade Credit Idx
4.64% 0.03%
Low Grade Credit Idx
8.44% 0.26%
Markit CDX Inv Grd Idx
93 2.20%
Markit CDX Mid Grd Idx
146 3.55%

Thursday, November 25, 2010

Economic Condition Review, 3Q 2010

So far, the consumer is missing-in-action in the US economy, placing all the pressure on both commercial and government balance sheets. Commercial balance sheets are doing everything possible to restore financial health, including cutting expenses, mainly by laying off workers and paying off debt. Banks, the primary source of credit for consumers and commercial borrowers, are lending only to prime customers, letting growth of credit remain below trend. Most businesses do not have pricing power, so prices are holding the line. Exceptions are businesses with pricing power such as health care, food and energy. Interesting to include that food inflation is widely recognized in China too. Online newspaper Caixin reports that: A rise in food prices, driven by too much bank credit, quantitative easing measures in the United States, speculation in commodities and natural disasters, was mainly responsible for the worse-than-expected inflation, according to the National Bureau of Statistics.

The government is using it's balance sheet (Federal Reserve as proxy) with the QE2 strategy, with the goals of increasing inflation in assets and stimulating job recovery, by creating new money with serial quantitative easing. John Hussman describes, in his Nov 15, 2010 letter, the financial recovery seen in 2010 as "an "economic recovery" that requires a tripling in the Fed's balance sheet, continues to average 450,000 new unemployment claims weekly, and relies on fiscal stimulus to counter utterly stagnant personal income, is ipso facto (by the fact itself) not a "standard" economic recovery. We have swept an enormous volume of bad debt under rugs, behind dams, and in back of curtains (not to mention in off-balance sheet vehicles such as Maiden Lane that were created by the Federal Reserve). But it is all effectively still there, festering. Meanwhile, our policy makers are trying to reignite financial bubbles in order to create an illusory "wealth effect" to propagate spending patterns that were inappropriate in the first place." These are conditions that are almost identical to a year ago, not overlooking isolated and significant price inflation over the year.

Tuesday, November 23, 2010

GDP (second estimate) and Corporate Profits (preliminary), 3rd Qtr 2010

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 1.7 percent.
The full text of the release on BEA's Web site can be found at
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

 

U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

Monday, November 22, 2010

Market Data: Week Ending November 19, 2010


Market Index 2009 Close 11/19 Close Week Change Simple YTD %
Dow Industrials Avg 10428.05 11,203.50 0.10% 7.44%
S&P 500 1115.1 1,199.73 0.04% 7.05%
Fed Funds Rate 0.25% 0.20% -0.02% 0%
10 yr T-note Yld 3.85% 2.87% 0.08% -0.98%
5 yr T-note Yld
1.52% 0.16%
5 yr TIPS - 'Real' Yld
-0.20% 0.13%
Implied 5 yr Inflation %
1.72% 0.03%
2 yr T-note Yld 1.14% 0.50% 0.00% -0.64%
2-10 Yr Slope 2.70% 2.37% 0.08% -0.33%
90 day T-bill Yld
0.13% 0.01%
Gold ($/oz) $1,096.95 $1,352.30 -0.98% 23.28%
WTI Oil ($/brl) $79.36 $81.98 -3.42% 3.30%
VIX "Worry Index" 21.68 18.04 -12.47% -16.79%





Credit Spreads
11/19 Close Week Change
Inv Grade Credit Idx
4.61% 0.09%
Low Grade Credit Idx
8.18% 0.12%
Markit CDX Inv Grd Idx
91 1.11%
Markit CDX Mid Grd Idx
141 0.71%

Thursday, November 18, 2010

Fundamentally Speaking, Now is a Confusing Time

Quantitative easing (QE 2) has begun and the markets are pretty confused, based on volatility of commodity prices and daily currency exchange swings, and the VIX. It's a terrible time to try forecasting a market's direction amidst all the financial situations around the world (Ireland banks, China inflation, Yen direction, euro direction, US$ direction) as well as the economic influence of QE 2 operations. There is also speculation about the process the Fed has chosen for it's QE 2 plan and whether it will be successful soon, if ever. An interesting observation of the plan is described in "They Just Don't Get It", written by Paul Kasriel.

Kasriel observes that the Fed is targeting the middle-term sections of the maturity spectrum, avoiding the bill's, or short-term issues. He contends that the Fed may have to deliver more easing until they can move the needle of credit outstanding up. He writes "The Federal Reserve has the unique ability to be able to create credit figuratively "out of thin air." So does the commercial banking system, if the Fed provides the "seed money." The ability to create credit out of thin air implies that the recipients of that credit can increase their current spending without any other entity in the economy having to cut back on its current spending. 

Leading Economic Indicator

Economic indications have been strengthening going into QE2 (Nov 3, 2010), gains reflected by two strong back-to-back 0.5 percent gains for the Conference Board's index of leading economic indicators (September revised from plus 0.3 percent). A wide yield spread continues to be the biggest positive though to a smaller degree given declines underway in long rates, declines triggered and furthered by QE2. A rise in money supply, also related to QE2, is an increasingly significant plus. Another central positive is the factory workweek, strength that is likely to continue given the uplift underway in the manufacturing sector.

Other readings in today's report include a 0.1 percent uptick in the coincident index, a small gain that follows two unchanged readings in a reminder of the economy's mid-year soft patch and the contrasting acceleration now underway.

Monday, November 15, 2010

Market Data: Week Ending November 12, 2010


Market Index 2009   Close 11/12  Close Week Change Simple YTD %
Dow Industrials Avg 10428.05 11,192.60 0.67% 7.33%
S&P 500 1115.1 1,199.21 1.35% 7.01%
Fed Funds Rate 0.25% 0.22% 0.00% 0%
10 yr T-note Yld 3.85% 2.79% 0.19% -1.06%
5 yr T-note Yld
1.36% 0.19%
5 yr TIPS - 'Real' Yld
-0.33% 0.10%
Implied 5 yr Inflation %
1.69% 0.09%
2 yr T-note Yld 1.14% 0.50% 0.16% -0.64%
2-10 Yr Slope 2.70% 2.29% 0.03% -0.41%
90 day T-bill Yld
0.12% 0.01%
Gold ($/oz) $1,096.95 $1,365.50 0.58% 24.48%
WTI Oil ($/brl) $79.36 $84.88 4.24% 6.96%
VIX "Worry Index" 21.68 20.61 -2.78% -4.94%





Credit Spreads
11/12   Close Week Change
Inv Grade Credit Idx
4.52% 0.15%
Low Grade Credit Idx
8.06% 0.21%
Markit CDX Inv Grd Idx
90 -4.26%
Markit CDX Mid Grd Idx
140 -7.89%

Monday, November 8, 2010

Market Data: Week Ending November 5, 2010


Market Index 2009   Close 11/05  Close Week Change Simple YTD %
Dow Industrials Avg 10428.05 11,444.10 2.93% 9.74%
S&P 500 1115.1 1,225.85 3.60% 9.03%
Fed Funds Rate 0.25% 0.20% -0.02% 0%
10 yr T-note Yld 3.85% 2.53% -0.07% -1.32%
5 yr T-note Yld
1.09% -0.08%
5 yr TIPS - 'Real' Yld
-0.60% -0.17%
Implied 5 yr Inflation %
1.69% 0.09%
2 yr T-note Yld 1.14% 0.37% 0.03% -0.77%
2-10 Yr Slope 2.70% 2.16% -0.10% -0.54%
90 day T-bill Yld
0.11% 0.00%
Gold ($/oz) $1,096.95 $1,397.70 2.87% 27.42%
WTI Oil ($/brl) $79.36 $86.85 6.66% 9.44%
VIX "Worry Index" 21.68 18.26 -13.87% -15.77%





Credit Spreads
11/05  Close Week Change
Inv Grade Credit Idx
4.35% -0.02%
Low Grade Credit Idx
7.82% -0.03%
Markit CDX Inv Grd Idx
86 -8.51%
Markit CDX Mid Grd Idx
142 -6.58%

Saturday, November 6, 2010

Sitting on a Signal: What Happened

The FOMC meeting held earlier this week resulted in the QE2 announcement. They will use the Fed's balance sheet to enable the additional purchase of $600 billion of Treasury securities using a monthly purchase plan until the end of 2Q2011. This is in addition to the reinvestment of principal payments on their MBS portfolio, estimated to average $35 billion per month, that they announced at their meeting in August.
The following comments on the plan from foreign government official's are from Bloomberg News articles found on November 5. Obviously concern about the plan is global because the US$ is a reserve currency and also the denomination of trade of many commodities.

Bernanke came under fire today from officials in Germany, China, and Brazil, who said his plan to pump cash into the banking system may jar other economies and fail to fuel U.S. growth. Critics including Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, have said Fed policy is encouraging investors to take on too much risk and threatens to undermine the dollar.
“It’s our problem as well if the U.S. is no longer certain that the old recipes don’t work anymore,” German Finance Minister Wolfgang Schaeuble said today in Berlin. The Fed’s injection of $600 billion was “clueless” and won’t revive growth, he said.

Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.” In China, Vice Foreign Minister Cui Tiankai said “many countries are worried about the impact of the policy on their economies.” He also said the U.S. “owes us some explanation on their decision on quantitative easing.” 
Asked by a student if “skyrocketing” commodities prices may threaten his inflation outlook, Bernanke said rising commodities prices are “the one exception” to a broad reduction in inflationary pressures. Overall, excess slack in the economy will make it difficult for producers to push through higher prices to consumers, he said.
“Emerging markets are growing quite quickly,” Bernanke said. “Demand for those commodities is pretty strong. That is going to be a contributor to inflation in the U.S. because it will affect gas prices, for example, and so on.”

Monday, November 1, 2010

Market Data: Week Ending October 29, 2010


Market Index 2009   Close 10/29  Close Week Change Simple YTD %
Dow Industrials Avg 10428.05 11,118.50 -0.13% 6.62%
S&P 500 1115.1 1,183.26 0.02% 5.76%
Fed Funds Rate 0.25% 0.22% 0.02% 0%
10 yr T-note Yld 3.85% 2.60% 0.05% -1.25%
5 yr T-note Yld
1.17% 0.02%
5 yr TIPS - 'Real' Yld
-0.43% 0.09%
Implied 5 yr Inflation %
1.60% -0.07%
2 yr T-note Yld 1.14% 0.34% -0.01% -0.80%
2-10 Yr Slope 2.70% 2.26% 0.06% -0.44%
90 day T-bill Yld
0.11% -0.01%
Gold ($/oz) $1,096.95 $1,357.60 2.39% 23.76%
WTI Oil ($/brl) $79.36 $81.43 -0.32% 2.61%
VIX "Worry Index" 21.68 21.2 12.89% -2.21%





Credit Spreads
10/29  Close Week Change
Inv Grade Credit Idx
4.37% 0.07%
Low Grade Credit Idx
7.85% -0.10%
Markit CDX Inv Grd Idx
94 -3.09%
Markit CDX Mid Grd Idx
152 -3.18%